LATELY, IT SEEMS EVERY MAGAZINE OR newspaper features a “bubble de jour” article. Most of the stories have an emotional orientation with very little empirical support, and most completely ignore the strength of demographics fueling the demand for housing. The articles also gloss over the national slow-growth/no-growth sentiment, which inhibits permitting and reduces housing supply in many of the most populous and desirable job centers.
The bubble is supposedly fueled by an influx of “flippers” across America with particular emphasis on Miami, Las Vegas, and Southern California. Radical “bubbleologists” warn the housing industry will be decimated. However, according to The State of the Nation's Housing 2005 report by the Harvard Joint Center for Housing Studies, the percentage of homes flipped annually (sold twice in the same year) has increased only slightly, from 5 percent to 6 percent, between 1998 and 2003. A recent NAHB survey of large national builders showed that just 3 percent of new single-family homes are being sold to speculative investors.
Other bubble-believers express their concerns over the housing market by comparing it to the U.S. stock market. These comparisons are simply illogical. The stock market is extremely liquid, and every listed company is for sale every day. In America, it's estimated that only about 6 percent of all homes are even available for sale at any one time. While stock market investors are motivated to generate income, most homeowners are content to simply enjoy their homes for their intended purposes: comfort and shelter.
According to the Harvard report, new home sales would have to plunge by more than 30 percent and remain down for more than a year to create a true buyers' market. That scenario is unlikely to occur any time soon, considering that both the NAHB and Wachovia's Economic Group are projecting no more than 2 million new starts this year. For the future, the data suggests the demand for housing will continue to increase and provide a healthy home building environment.
Key housing indicators are all pointing up. In 2004, single-family starts reached a record 1.6 million units, up from 1.4 million in 2003. Multifamily starts held steady at the 330,000-to-350,000-unit range, a mark not met since 1998. And the backlog of homes sold but not yet under construction is at an all-time high.
Sales of new single-family homes are on a record pace. In April, the seasonally adjusted annual rate was 1.31 million units, about 13.3 percent ahead of last year's mark. Multifamily units remain especially strong, with prices rising nearly three times as fast as single-family homes since 2000. Demand for new homes could reach 20 million units from 2005 to 2015, as noted in the Harvard report.
Other significant market forces fail to support the bubble theory: Land scarcity and constraints are driving prices higher more than speculative investment; high job creation and more cash-rich households support demand; increased minority and immigrant buyers are entering the market; favorable demographic drivers exist among various home buyer groups.
Job growth continues to fuel the American Dream. An estimated 175,000 new jobs are added each month, and approximately 3.5 million new jobs were created since 2003. The U.S. Census Bureau has more good news: Total employment from 2002 to 2012 is projected to increase by 15 percent—or 21.3 million jobs. Population growth also buoys our industry. The U.S. population is estimated to exceed 295 million this year versus 248 million in 1990.
The bubble theory is not supported by homeownership statistics. In the first quarter of 2005, the seasonally adjusted homeownership rate was 69.2 percent, the highest level in American history. Boomer homeownership rates have climbed to the 80 percent mark. Boomers demand larger and more distinctive second homes, a category projected to grow at an annual rate of 4.4 percent from 2000 to 2010—more than double the rate of all homes.
A national housing bubble? I would say, “one man's bubble is another man's champagne.”
Editor's Note: This column is a forum provided to the CEOs of America's largest home builders in cooperation with the NAHB. Address responses to BIG BUILDER's editor at email@example.com.